National Industry Liaison Group’s Comment on OFCCP’s Notice of Proposed Rulemaking on Requirement to Report Summary Data on Employee Compensation

National Industry Liaison Group’s Comment on OFCCP’s Notice of Proposed Rulemaking on Requirement to Report Summary Data on Employee Compensation

The National Industry Liaison Group (NILG) routinely submits comments to proposed rules that affect the EEO and affirmative action obligations of federal contractors. The NILG Board believes that representing the views of our ILG constituents around the country in this manner is vital to achieving our mission and vision.

Below is our comment to the OFCCP’s Notice of Proposed Rulemaking on the Requirement to Report Summary Data on Employee Compensation (or the Equal Pay Report). The NILG Board surveyed the ILG community for input and feedback on the various points raised in the comment and endeavored to present the majority view in all cases. We thank those who participated in the survey and ask for your continued input on future matters.

For additional information about the National Industry Liaison Group, please visit our website at www.nationalilg.org.

National Industry Liaison Groupï¿½s Comment on OFCCPï¿½s Notice of Proposed Rulemaking on Requirement to Report Summary Data on Employee Compensation

RIN 1250-AA03

Dear Director Carr:

The National Industry Liaison Group (ï¿½NILGï¿½) welcomes the opportunity to comment on the OFCCPï¿½s Notice of Proposed Rulemaking on Government Contractors, Requirement to Report Summary Data on Employee Compensation (ï¿½NPRMï¿½) published in the Federal Register on August 8, 2014.

By way of background, the NILG was created over thirty years ago as a forum for the Office of Federal Contract Compliance Programs (ï¿½OFCCPï¿½ or ï¿½Agencyï¿½) and federal contractors to work together towards equal opportunity in the workplace. Throughout the country, local Industry Liaison Groups (ï¿½ILGsï¿½) have formed to further this unique partnership of public and private sector cooperation to proactively advance workplace equal employment opportunity. The NILG Board is comprised of elected members representing the local ILGs from across the country. Over the years, the NILG and the ILGs, which are comprised of thousands of small, mid-size, and large employers across the country, have reached out to the OFCCP and other agencies, such as the Equal Employment Opportunity Commission (ï¿½EEOCï¿½), with mutual goals of fostering a non-discriminatory workplace. In response to the NPRM, the NILG seeks to present the views of its constituency and has gathered their input and guidance in preparing these comments.

We commend the OFCCP for, and share its commitment to, promoting equal employment opportunity and fair pay. In our comments below, we offer observations and suggestions designed to ensure all individuals are provided equal employment opportunity while, at the same time, balancing the contractor communityï¿½s legitimate interest in ensuring actions taken by the Agency are based upon valid assumptions and minimize administrative burdens.

I. General Response to NPRM

As noted above, the NILG shares the OFCCPï¿½s commitment to equal opportunity in all terms of employment, including compensation. There is no doubt that ensuring non-discrimination in compensation by federal contractors is an important objective. However, we have a threshold concern with the concept of analyzing and comparing employersï¿½ compensation information in a single, ï¿½one size fits allï¿½ data collection tool. There is no uniform way to set pay in the private sector. Indeed, there are as many different ways to set and determine compensation as there are companies in this country. Employers set wages differently, determine wage increases differently, and make adjustments to pay schemes differently.

Accordingly, we believe the OFCCPï¿½s theory that the proposed Equal Pay Report will generate data for effective analysis and comparison is misplaced. Because of the widely divergent ways in which federal contractors pay their employees, there can be no ï¿½one size fits allï¿½ approach to collecting and analyzing compensation. A proper compensation analysis can only be conducted by understanding an individual companyï¿½s compensation system and devising an appropriate model specifically for that company. An overview report that collects generic information will rarely yield reliable results for determining if compensation discrimination exists or if further analysis is truly necessary. Further, because of the wide range of employees in the various EEO-1 categories, differences in compensation by EEO-1 category among different employers cannot accurately identify or predict which employers have discriminatory compensation practices.

The NILG recommends the Equal Pay Report not be used as a tool to identify potential discrimination by analyzing and comparing employees across variant workforces. Considering the lack of anticipated utility such analyses would deliver, for reasons discussed herein, we encourage the OFCCP to reconsider plans to implement the Equal Pay Report as proposed. Accordingly, the NILG provides comments below in an effort to increase the effectiveness of the final Equal Pay Report. Additionally, the NILG suggests the OFCCP develop general guidelines for how compensation should be analyzed to allow federal contractors to mold the Agencyï¿½s general principles to their own individual compensation systems and conduct proactive analyses, as appropriate.

II.

Responses to Specific Issues in the NPRM

In an effort to provide useful comments to the Agency, the NILG raises concerns to specific issues in the NPRM. Our goal is to ensure the most appropriate information is collected in the most efficient manner while also ensuring contractors and the OFCCP are not overburdened with ineffective requirements. Accordingly, the NILG offers the following input:

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The OFCCP has proposed covered contractors file the Equal Pay Report by March 31st containing: (1) calendar year W-2 earnings; (2) for each employee included in the contractorsï¿½ EEO-1 Report; (3) which is filed by September 30 of the preceding year. As the complexity of the preceding sentence suggests, the proposed Equal Pay Report requirements pose multiple problems for most contractors.

The OFCCP proposes that contractors submit total annual W-2 earnings in the Equal Pay Report. The NILG submits a better approach is a comparison of employeesï¿½ annual salary rate as of a specific date (such as the EEO-1 Report date, discussed below). The NILG respectfully suggests that use of total annual W-2 earnings will not provide the best compensation information for analysis.

Comparison of total annual W-2 earnings will produce inconsistent results because employees frequently change employment status as a result of hire, promotion, transfer, demotion, termination, layoff, recall, leave of absence, and other factors. Furthermore, W-2 earnings include many components of taxable income beyond compensation for work performance such as relocation expenses, deferred compensation, severance (often calculated on length of service), certain retirement payouts, and particular long term disability payouts, among others. W-2 earnings also account for overtime pay, which would skew data across various industries and various states which calculate overtime differently. Moreover, W-2 earnings do not account for various voluntary employee pre-tax elections such as 401(k), 403(b), or Section 125 contributions. Given these variables, W-2 earnings are not an accurate indicator of potential pay disparities between genders or among races and ethnicities.

Although we recognize that annual salary rate does not necessarily provide insight into all types of compensation, such as bonuses, commissions, overtime, or holiday pay, it typically influences these other components of compensation. In addition, considering and comparing bonuses or commissions would be misleading and distracting from the inquiry into whether compensation discrimination occurred. Bonuses and commissions are based on individual skill, contribution, effort, and performance. Including these types of pay without controlling for actual performance would skew any corresponding disparity analysis. Moreover, use of annual salary rate also removes pay variables affected entirely by employee choice, such as pre-tax deductions like 401(k) and insurance elections or voluntary overtime declined by employees.

Because many factors outside of an employerï¿½s control affect total annual W-2 earnings, the OFCCP should instead collect annual salary rate, which will provide more effective and useful analytical data.

The proposed Equal Pay Report requires contractors to report earnings for each employee included in the contractorsï¿½ EEO-1 Report filed by September 30 of the preceding year. The difficulty with this proposed reporting scheme is the need to reconcile employees from two separate reporting periods. For the EEO-1 Report, the data includes a snapshot of individuals employed on a specific date between July 1st and September 30th. On the other hand, the proposed Equal Pay Report data would include all employees who received pay during the preceding calendar year. In effect, the two reports will not include the same universe of individuals.

For example, an individual hired after September 30th would not be included in the EEO-1 Report, but would have received pay for the calendar year. Therefore, contractors would be required to determine which employees to remove from its calendar year compensation data because they were not employed on the date the EEO-1 Report data was prepared. For most contractors, this would require a manual process of comparing employees in the different data sets. This manual process would be exceptionally time consuming and burdensome. Moreover, this may be an impossible task for some contractors whose EEO-1 Report data does not include employee names or other unique identifiers.

To reduce this burden, the Equal Pay Report should model the EEO-1 reporting scheme. Specifically, the Equal Pay Report should include a snapshot of annual salary data for individuals employed on a specific date between July 1st and September 30th.

2.

The Equal Pay Report Filing Deadline Should be September 30th

The proposed Equal Pay Report imposes a filing deadline of March 31st. For similar reasons set forth above, the Equal Pay Report filing deadline should also mirror the EEO-1 reporting deadline of September 30th. This filing deadline will ensure congruity between employees captured in the EEO-1 and Equal Pay Reports while also reducing the burden on contractors. As discussed, use of annual salary rate is the best approach when using a September 30th reporting deadline, as most contractors do not have the capability of preparing W-2 earnings reports for a time period other than a calendar year.

Alternatively, if the OFCCP decides to retain the proposed reporting scheme and March 31st filing deadline, we respectfully request the Equal Pay Report data be ï¿½divorcedï¿½ from the data submitted in the EEO-1 Report. In other words, if the Equal Pay Report is to be filed in the first quarter of the year as proposed, the OFCCP should not require the data submitted to align with employees included in the EEO-1 Report. Rather, the Equal Pay Report should simply include annual base pay for all employees during the previous calendar year. Because the proposed Equal Pay Report requires the submission of the total number of employees by race, ethnicity, and gender, the proposed Equal Pay Report data is independent from, and need not align with, previously submitted EEO-1 data.

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C.

The Equal Pay Report Should Not Require Reporting of Hours Worked

The proposed Equal Pay Report also requires covered contractors to submit total hours worked by race, ethnicity, gender, and EEO-1 category for all employees. The NILG urges the OFCCP to abandon the proposed requirement that contractors report actual hours worked by employees in the Equal Pay Report. Many employers do not record exact hours worked by exempt employees. Requiring contractors to report default 2080 for full-time employees and 1040 for part-time employees would not accurately reflect the variety of unique work schedules utilized in the modern workforce.

Additionally, many contractors do not maintain all of the requested information in just one system. For example, a contractorï¿½s payroll system that houses pay information or hours worked may not include demographic or EEO-1 category information for employees, which is usually housed in a separate Human Resources Information System (ï¿½HRISï¿½). If these two systems do not communicate, the contractor must manually combine reports from the two systems. Even if the systems do communicate, significant programming hours would likely be necessary to customize a report to produce the required information.

Furthermore, because most contractorsï¿½ HRIS includes employeesï¿½ current salary rate, the NILG again respectfully posits annual salary rate, without hours worked, is the most appropriate and least burdensome data to collect.

The Agency proposes to require submission of compensation information by EEO-1 job category. For the vast majority of NILG constituents, job title is the most appropriate job category to use when analyzing compensation. EEO-1 job categories are too broad or artificial for meaningful analysis. Some NILG constituents suggest use of census codes, such as those used in developing Affirmative Action Programs pursuant to Executive Order 11246 and the implementing regulations at 41 C.F.R. Part 60, in lieu of EEO-1 categories. However, the NILG recognizes submission of compensation information by job title (and even census code) would be overly burdensome and is not a feasible, nor a practical, alternative for OFCCPï¿½s desire to establish a single reporting mechanism for all contractors.

Because of the wide disparity in the types of jobs included in the same EEO-1 category, the NILG is skeptical that the Agency can effectively identify ï¿½discriminatorsï¿½ based on pay gaps that are larger than the industry standard in various EEO-1 categories. The NILG cautions the Agency that using EEO-1 categories as the basis for the Equal Pay Report creates a significant risk of producing another failed tool for analyzing compensation. The former EO Survey, implemented in 2000 and abandoned as a poor predictor of compliance in 2006, also mandated the submission of compensation data by EEO-1 category. The NILG doubts the proposed Equal Pay Report can be any more effective than the EO Survey. Therefore, and as set forth above, NILG suggests OFCCP not use the Equal Pay Report as an enforcement tool as currently proposed.

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E.

Contractors Should Submit the Equal Pay Report Every Other Year

The OFCCP has proposed covered contractors be required to submit the Equal Pay Report annually and has expressed concern that a less frequent reporting period would result in stale or outdated data. The NILG submits reporting every other year is more appropriate and would be significantly less burdensome for contractors. By the time the OFCCP collects and analyzes all of the Equal Pay Report data from all contractors and uses that information to select and schedule contractors for compliance reviews, the compensation data will already be outdated whether it is based on annual or biennial data. However, most contractorsï¿½ compensation schemes apply small and gradual increases on an annual basis, and therefore, the results drawn from a contractorï¿½s Equal Pay Report in year one are not likely to be significantly or substantially different from the results drawn from that contractorï¿½s Equal Pay Report in year two. Accordingly, the NILG respectfully requests the OFCCP consider the less burdensome approach in requiring contractors submit reports every other year.

F.

The OFCCP Should Refrain from Publicizing Objective Industry Standards

The OFCCP has expressed its intention to use the information from the Equal Pay Report to develop and publish objective industry standards for compensation. The NILGï¿½s constituents have expressed concerns regarding such a practice.

As an initial matter, the NILG respectfully disagrees with the premise of the Agencyï¿½s proposal to develop ï¿½objective industry standards.ï¿½ The idea of the OFCCP conducting industry-wide compensation analyses is contrary to the purpose, mission, and authority of the Agency. As noted on the OFCCPï¿½s website:

The purpose of the Office of Federal Contract Compliance Programs is to enforce, for the benefit of job seekers and wage earners, the contractual promise of affirmative action and equal employment opportunity required of those who do business with the Federal government.1

The NILG is unclear as to how an analysis of compensation in various industries would enable the OFCCP to ferret out compensation discrimination. Comparing compensation at one company to compensation at another company has no relevance to determining whether one of those companies is committing compensation discrimination. As discussed, companies within the same industry have different compensation practices and philosophies, and comparing those companies to each other would serve no relevant purpose for the OFCCP.

Further, the NILG and its constituents specifically oppose the idea proffered by the Agency that the objective industry standards be used to pressure contractors into increasing compensation for employees. The NPRM states:

The disclosure of compensation data summarized at the industry level enables contractors and subcontractors to assess their compensation structure along with

those of others in the same industry, and provide useful data to current and potential employees. Some of these employers will not want to be identified as having pay standards that are significantly lower or different from those of their industry peers, since this may encourage valuable employees to consider moving to other employers, or discourage applicants who see that higher paying jobs may be available elsewhere. Employers do not want to be known as one of the lowest paying members of their industry, and may voluntarily change their pay structure. 2

The NILG is deeply concerned by the Agencyï¿½s proposal that the Equal Pay Report be used to ï¿½shameï¿½ contractors into altering their non-discriminatory compensation schemes. As discussed above, mere differences in pay within an EEO-1 category among contractors do not accurately identify compensation discrimination, nor automatically trigger a need for contractors to alter their pay systems.

Moreover, contractors do not believe the OFCCPï¿½s ï¿½objective industry standardsï¿½ would be useful in analyzing compensation policies and practices. Numerous essential factors relevant to determining compensation will not be captured by the proposed Equal Pay Report such as actual job duties of employees, size of company, total number of employees, geographic location, specific service provided or product produced, and benefits offered. Therefore, this type of information will not enable contractors to better analyze their own internal compensation schemes and systems. Further, many employers already use market-based compensation studies for this very purpose. Such reports are more detailed and precise than the information that could be obtained from the proposed generic, ï¿½objective industry standards.ï¿½

Thus, the NILG respectfully recommends the OFCCP forgo the premise of making industry standards publicly available. Contrary to the Agencyï¿½s assessment, instead of providing unique insight into what a company should be paying employees, we submit such information is more likely to cause misunderstanding and misperceptions by employees and applicants, resulting in less satisfaction, rather than more satisfaction, as the Agency suggests.

G.

The Security of Data Submitted in the Equal Pay Report Must Be Ensured.

1.

The OFCCP Must Safeguard Confidential and Proprietary Company Information

The Unites States of America was founded on the tenets of competitive entrepreneurship and requiring private companies to release highly confidential compensation information with no guarantee it would not be shared in the marketplace could cripple a company to its competitors,

both domestic and foreign. Compensation information is confidential and proprietary business information. This information is especially sensitive and confidential, as it necessarily provides insight into competitive strategies, internal costs, and other valuable corporate details. Release of an organizationï¿½s compensation information ï¿½ either through the Freedom of Information Act (ï¿½FOIAï¿½), accidently, or by misappropriation ï¿½ would be damaging for contractors.

As a solution to this substantial risk, NILG proposes the OFCCP summarily designate the Equal Pay Report as confidential and sensitive, and exempt from disclosure under the FOIA. Sound justifications exist for protecting the proposed Equal Pay Report from FOIA disclosure. Specifically, compensation information could readily fall within the FOIA Exemption 4 (ï¿½trade secrets and commercial or financial information obtained from a person and privileged or confidentialï¿½), as acknowledged by the OFCCP in the NPRM, and Exemption 6 (ï¿½personnel . . . files the disclosure of which would constitute a clearly unwarranted invasion of privacyï¿½).3

The OFCCP acknowledges that Exemption 4 of the FOIA may protect certain information disclosed in the proposed Equal Pay Report. However, reliance on these Exemptions places the burden on contractors receiving the request for disclosure to object to the production of confidential ï¿½trade secrets and commercial or financial information,ï¿½ as opposed to offering protections outright. Employers should not bear the burden of ensuring the confidentiality of the compensation data collected for the Equal Pay Report. Indeed, the compensation data at issue is even more confidential and proprietary than the demographic data currently provided in EEO-1 reports. Yet, the EEOC is prohibited from divulging that data, unless as aggregate compilations and without revealing the identity of the individual entity.4

The NILG suggests the OFCCP remove this burden from the contractor community and protect this information from disclosure without employer intervention.

2.

The OFCCP Should Protect Employee Privacy

As employers, federal contractors owe a serious duty (in some jurisdictions, even a mandated statutory obligation) to maintain confidentiality of employeesï¿½ compensation information. The proposed Equal Pay Report requires reporting aggregated pay by EEO-1 job category, sex, and race/ethnicity at each establishment. Where the number of employees in a particular grouping is small, an individual employeeï¿½s compensation would, in effect, be disclosed not only through submission of the proposed Equal Pay Report, but also to anyone who is granted access through a FOIA request. Contractors should not be required to violate their employeesï¿½ individual privacy, or in some cases, forced to choose between complying with this proposed rule or another statutory requirement.

To address these real privacy concerns, the scope of disclosure under the Equal Pay Report should be limited to groups of twenty-five or more employees by gender and race/ethnicity in any EEO-1 job category, with a minimum of five employees in every combined gender and race/ethnicity group, at an establishment. For example, where there are fewer than twenty-five women in a given EEO-1 job category at an establishment, there should be no compensation disclosure requirement. Similarly, where there are fewer than twenty-five

employees in a given race/ethnicity and EEO-1 job category at an establishment, those individuals should not have their compensation divulged through the proposed Equal Pay Report. Further, when less than five employees appear in each combined gender and race/ethnicity group, such as Native American Females or Black Males, the employer should not be required to report these selected individualsï¿½ compensation in the Equal Pay Report. Increasing the minimum employee population reporting threshold in this way will protect confidential individual compensation data.

3.

The OFCCP Must Ensure Data Security

The NILG respectfully requests details regarding the confidentiality and security of sensitive employee and company compensation data within the OFCCPï¿½s electronic database. Specifically, the NILG encourages the Agency to employ the following safeguards, among others: (1) uploading the data to a dedicated and encrypted directory and providing a receipt for successful uploads; (2) strictly limiting access to the uploaded data to those within the Agency that have an express need; (3) password-protecting access to the data with acceptable industry standards, e.g., 12 characters with at least one letter, at least one number, at least one capitalized letter, at least one special character, and no repeating patterns or dictionary words; (4) storing the data in a secure and encrypted location that is not cloud-based; (5) denying remote access to the data; (6) implementing a specific, time-based data retention period; and (7) ensuring similar safeguards are in place if any data or analysis are outsourced to private contractors.

Accordingly, the NILG Board requests the Agency not move forward with the implementation of the Equal Pay Report until appropriate safeguards are developed, tested, and perfected to ensure protection of employersï¿½ highly sensitive pay data.

H.

The OFCCP Should Provide Exceptions to Submitting Data Electronically

The OFCCP proposes to require contractors to submit the Equal Pay Report electronically. Most contractors are in favor of having the ability to submit the information electronically, if necessary security measures are in place. However, the NILG recommends the Agency provide exceptions for those contractors, regardless of size, that do not have the technological capability to interface with the system developed by the Agency.

The NILG requests guidance for implementing the proposed Equal Pay Report for contractors with Functional Affirmative Action Plans (ï¿½FAAPsï¿½). The NPRM is silent on the impact of the Equal Pay Report of FAAPs. Contractors administering Affirmative Action Plans by approved functional or business unit require direction on their submission of the Equal Pay Report, which currently requires filing per business establishment.

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J.

IPEDs Should Be Exempt From Filing the Equal Pay Report

The OFCCP has requested input regarding the need to collect additional compensation data from IPEDS. Given the scope of IPEDS employersï¿½ existing reporting requirements with the U.S. Department of Education, the NILG does not believe a need exists to collect further compensation data from these entities through the Equal Pay Report. Additionally, for the reasons set forth above, which are magnified in a post-secondary education setting, establishing an industry standard for pay covering IPEDS employers is unreasonable. The NILG, therefore, requests IPEDS be exempt from filing the Equal Pay Report.

K.

The Proposed Equal Pay Report Will Impose a Significant Burden on Contractors

The OFCCP estimates the cost for each contractor in complying with the NPRM is $684 per establishment or $2,176 per company. The NILG believes the Agencyï¿½s estimate falls short of an accurate cost assessment. Our constituents advise the cost of compliance will require thousands of dollars just in programming and Information Technology resources alone. The burden for manually reconciling data would be well over $1,000 per establishment. As one contractor notes, for a company with 300 establishments, even if the $684 estimate is accurate, it would cost a staggering $205,200 for that organization. The time and monetary burden of this NPRM is significant, and based on the points laid out above, outweighs the estimated utility of the report.

Finally, the OFCCP estimates contractors with automated systems will take six hours per establishment to generate the report data, conduct analyses, complete the online report form, review the report, and submit it to the OFCCP. Most of the NILG constituents disagree with this estimate and expect the actual submission of the Equal Pay Report will take considerably more time. With the need to merge data from multiple databases and reconcile individuals included in the EEO-1 Report with the required compensation data, most contractors estimate the time necessary to prepare the report to be at least one day per establishment. For contractors with multiple establishments, this time commitment is extensive.

III.

Implementation of Additional Measures Given the Impact of the NPRM

Given the extensive burdens the proposed Equal Pay Report imposes on contractors, the NILG requests the OFCCP provide additional measures before full implementation of the Equal Pay Report.

A.

The OFCCP Should Institute a Pilot Program

The NILGï¿½s constituents are uniformly in favor of the OFCCP conducting a small pilot program to assess the utility of the Equal Pay Report, as recommended by the National Research Council, prior to implementing a mandatory report for all covered contractors.5

was utilized with the EO Survey, which resulted in the rescission of that program when studies demonstrated the EO Survey was not an effective predictor of compliance. Both the Agency and the contractor community would benefit from a small-scale rollout and time to analyze the results of the Equal Pay Reportï¿½s ability to predict compensation discrimination.

B.

The OFCCP Should Provide Contractors One Year to Implement the Equal Pay Reporting Requirements

The NILG respectfully requests the Agency provide contractors with at least one year to implement any necessary systems and programming changes. HRIS programmers need time to: (1) understand the intricacies of the regulatory requirements; (2) design the technology changes needed to meet the requirements; (3) program the technology accordingly; and (4) test the configuration changes to ensure proper functionality. Each of these four phases is time-intensive and subject to setbacks. A one-year implementation period will provide sufficient lead time to ensure contractors have the ability to comply with the new requirements.

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We thank the OFCCP for its consideration of our comments and suggestions. If the Agency should wish to discuss this Commentary Letter, please contact Mickey Silberman, NILG Board Counsel, at (303) 225-2400 or silbermanm@jacksonlewis.com.